Remarks Of
Isaac C. Hunt, Jr.
Commissioner*
U.S. Securities and Exchange Commission
Washington, D.C.
"The 1935 Act: Where Do We Go From Here?"
The Energy Daily's 2nd Annual Finance Forum: Securitization,
M&A Restructuring
June 3, 1997
______________
* The views expressed herein are those of Commissioner Hunt
and do not necessarily represent those of the Commission,
other Commissioners or the staff.
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
The 1935 Act: Where Do We Go From Here?
Thank you for the opportunity to be with you today. My
remarks will be brief, since I am very much looking forward to
the panel discussion. Further, I will limit my remarks to the
SEC's recent testimony on current PUHCA-related legislation
before the Senate Banking Committee, and leave any personal
observations for the subsequent panel discussion.
When I learned that the Senate -- finally -- had confirmed
my nomination to serve as a Commissioner at the U.S. Securities
and Exchange Commission, several thoughts immediately came to
me:
(1) I would work at a well-respected agency with strong
leadership and a talented and dedicated staff;
(2) I would return to the District of Columbia, where I had
lived and worked for years; and,
(3) I would be able to take a leadership role with respect to
many issues that I had considered and taught as a
professor of securities law;
Now let me tell you two thoughts that did not come to me on
that day. First, I didn't think that on April 29, 1997, I would be
testifying on behalf of the SEC before Senator D'Amato's Senate
Banking Committee on Chairman D'Amato's bill to repeal the
Public Utility Holding Company Act of 1935. Second, I didn't
think that a former SEC Commissioner -- Rick Roberts -- would
invite me to come to a gathering such as this one and offer my
views on issues related to public utility holding companies. After
all, the topic of PUHCA reform never was a subject of any of my
law school classes.
But here I am today, and there I was before the Senate
Banking Committee just a few weeks ago.
Before I begin, please note that the views I express today are
my own, and are not necessarily the views of the SEC, my fellow
Commissioners, or the SEC's staff. Of course, however, in these
prepared remarks I am discussing testimony on behalf of the
SEC, so I will try to succinctly state the agency's views.
April 1997 Testimony
SEC's Legislative Recommendations. The SEC's testimony
supported Chairman D'Amato's bill -- Senate Bill 621 -- and the
goals that it seeks to achieve. The bill would repeal the 1935 Act
and establish a less pervasive framework for regulation of public
utility holding companies.
The SEC's view is that while the 1935 Act has been
enormously successful legislation, it has become redundant in
many respects. This redundancy has been caused by various
factors, including:
(1) the enormous changes occurring in the utility industry,
(2) prudent administration of the Act,
(3) expanded and strengthened state regulation; and
(4) the development of federal regulation for all issuers of
securities, including public utility holding companies.
The testimony noted that in mid-1994, SEC staff, at the
direction of Chairman Arthur Levitt, undertook a study of the
regulation of public utility holding companies. That study was
ably guided by then-Commissioner Roberts, and its purpose was
to identify unnecessary and overlapping regulation, and also to
identify those features of the 1935 Act that remain appropriate for
the regulation of the contemporary electric and gas industries. In
June 1995, the SEC staff issued its study, which proposed a range
of legislative and administrative measures designed to eliminate
unnecessary regulatory burdens on public utility holding
companies.
The study's preferred legislative option was repeal of the
1935 Act, accompanied by additional authority at the state and
federal level to allow for the continued protection of consumers.
Consumer protection would be accomplished through two
concepts:
(1) examination and oversight of transactions between or
among holding company affiliates by the FERC, and
(2) access to books and records by the FERC and state utility
commissions.
I testified that the SEC still believes that this conditional
repeal approach is the wisest course, as it would achieve the
economic benefits of unconditional repeal, and yet also preserve
the ability of states to protect consumers.
Chairman D'Amato's bill largely implements the SEC's
conditional repeal approach, although the bill does not adopt the
recommendation that the FERC have discretion to exercise
jurisdiction over affiliate transactions. I testified that the SEC
continues to believe that such authority is necessary to shield
consumers from the potential abuses that may be involved in
affiliate transactions.
While the SEC supports the approach reflected in Chairman
D'Amato's bill, I am sure I share the view of many here that
Congressional action to repeal the 1935 Act probably won't occur
in the near future. Proposals for comprehensive reform of energy
legislation also are under consideration by Congress, and perhaps
conditional repeal of the 1935 Act could be considered as part of
that comprehensive reform effort.
SEC's Administrative Recommendations. I testified that
pending Congressional action, the SEC had begun to implement
many of the administrative initiatives that were recommended in
the 1995 study to streamline regulation. The study recommended:
(1) rule amendments to broaden exemptions for routine
financings by subsidiaries of registered holding
companies;
(2) rule amendments to provide a new exemption for
acquisitions of interests in companies that engage in
energy-related and gas-related activities;
(3) changes in administration of the Act that would permit
a "shelf" approach for approval of financing
transactions, relax constraints on utility acquisitions,
and streamline the approval process for such
transactions; and
(4) increased focus upon auditing regulated companies and
assisting state and local regulators in obtaining access to
books, records and accounts.
Some, but not all, of these recommendations have been
implemented.
* * *
In conclusion, I testified that by supporting conditional
repeal, the SEC hopes to reduce unnecessary regulatory burdens
on America's energy industry while providing adequate
protections for energy consumers. It should be clear to everyone,
however, that until such legislation is enacted the SEC will take
seriously its duties to administer faithfully the letter and the spirit
of the 1935 Act.
Again, thank you for inviting me to be with you this
morning.